Dollar is little changed after Fed left the fed funds rate unchanged at historical low of 0-0.25% today and offered a less optimistic outlook on the economy in the accompanying statement...
Dollar is little changed after Fed left the fed funds rate unchanged at historical low of 0-0.25% today and offered a less optimistic outlook on the economy in the accompanying statement. Fed noted that recovery is continuing "somewhat more slowly than the Committee had expected." Rates will be held at an exceptionally low level for "an extended period." Nevertheless, Fed still "expects the pace of recovery to pick up over the coming quarters and the unemployment rate to resume its gradual decline toward levels that the Committee judges to be consistent with its dual mandate." Fed played down the significance of recent surge in inflation and "anticipates that inflation will subside to levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate." Also, as expected, Fed announced to complete the QE2 program at the end of June and "will complete purchases of $600 billion of longer-term Treasury securities by the end of this month and will maintain its existing policy of reinvesting principal payments from its securities holdings."
Fed also published their updated forecasts. For 2011, GDP is expected to grow 2.7-2.9%, revised down from prior projection of 3.1% to 3.3%. That's the second time Fed lowered growth projections. For 2012, GDP is expected to grow 3.3-3.7%, also lowered from prior projection of 3.5-4.2%. Regarding unemployment, for 2011, unemployment rate is projected to be at 8.6-8.9% in Q4. That's higher than April's projection of 8.4-8.9%. For 2012, unemployment is projected to be 7.8-8.2%, also, higher from April projection of 7.6-7.9%. Regarding core inflation, core PCE is projected to be at 1.5-1.8% in 2011, higher than April projection of 1.3-1.6%. For 2012, core PCE is projected to be at 1.4-2.0%, also higher than April forecast of 1.3-1.8%.
Dollar is, though, a bit firmer while stocks turn red after Fed Chairman signaled that there will be no QE3 in his second post meeting press conference. Bernanke emphasized that the situations are very different between now and last August. Most notably, firstly, "many objective indicators suggested deflation was a non-trivial risk". Meanwhile, employment has been improving even though the improvements are "frustratingly slow." Though, Bernanke still kept the option open as he noted that part of the slowdown in the economy is "temporary" but part "maybe longer". And, there "maybe some of the headwinds that are concerning us, like the weakness in financial sector, problems in the housing sector - some may be stronger and more persistent than we thought."
